Jeremy Warner's Outlook: So much for the special relationship as UK caves in over inadequate 'open skies' deal

Brown's Budget trickery; A banking fudge, or a vital first step?

Friday 23 March 2007 00:30 BST

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Ah, the special relationship, the thing that joins us English-speaking nations at the hip in an alliance of mutual understanding and shared Anglo-Saxon values against the wrong-headed and conflicting demands of the dastardly Europeans.

I am pleased to say that it seems to have worked a treat with the "open skies" negotiations, where despite frantic calls by the Prime Minister to his old pal in the White House, George Bush, Britain has found itself completely isolated and almost wholly ignored in opposing the deal hammered out between the US and the European Union.

Having been so comprehensively outmanoeuvred, the UK Transport Secretary, Douglas Alexander, had no option but to put as brave a face on it as possible yesterday. The goal remained full liberalisation, he insisted, not the one-sided mishmash which has now been enshrined.

In pursuit of this aim, Britain has won the right to reimpose some of the restrictions US carriers currently face if the market hasn't been fully liberalised by 2010. Our brave transport secretary has salvaged at least something from the wreckage - a big stick with which to force the Americans to come to heel. The reality of this concession is that it is no more than a fig-leaf, a face-saving device which allows the British Government to pretend it's not walking away from the talks entirely empty-handed.

As for the delay in implementation, not even British Airways thinks that a worthwhile concession. If you are going to agree to be raped by the Americans, best just get on with it is BA's view. Willie Walsh, the chief executive of British Airways, had it about right when he said the EU would be naive to believe the US will deliver on the next stage of liberalisation without sanctions. He might have left out the sanctions rider, for the ones agreed seem to me to be about as worthless as a ten-bob note.

No reasonable argument can be made for opposing open skies per se, or none that don't make reference to the new dictatorship of emissions controls. A fully liberalised market ought to mean more competition, more choice, and lower prices. The trouble with the treaty as proposed is that the Europeans deliver on their side of the bargain but the Americans do not.

US airlines have the right to do pretty much what they like in Europe, but there remain big restrictions on European airlines in the US. In particular, there are no reciprocal rights of "cabotage" - the ability of European airlines to pick up passengers in the US and then fly them to another destination within the US. Severe restrictions on ownership of US airlines remain in place, and so does the "Fly America" policy, under which US government officials are obliged to fly with US airlines.

Still, no matter. According to Mr Alexander, the Americans are now under an obligation to deliver on these issues or they will find themselves back where they started. This I somehow doubt. Virtually every other European country was ready and willing to sign up to the sanction-free treaty, because they have a lot less to lose from it than Britain.

The great bulk of traffic between the US and Europe is through the UK, and most of that goes through Heathrow. For them, the prize of open skies is not really cabotage, but Heathrow where, slots allowing, they will now be able to land and pick up passengers en route to the US.

How likely is it that the Europeans would impose sanctions if America doesn't deliver? Not very, especially if by then American airlines have invested heavily in the infrastructure to take advantage of the new open skies regime. A trade war would be threatened if Europe tried to back-track.

Nor is it at all likely the Americans will in fact deliver on full-scale liberalisation. The Bush administration may be philosophically in favour, but it is not in the President's gift. Congress is where power resides in matters to do with trade, and here opposition to cabotage and foreign ownership remains entrenched.

The best argument that can be made in favour of what was approved by European transport ministers yesterday is that even a one-sided deal is better than no deal at all. If it smoothes the way to a wider free-trade agreement between the US and Europe, then that's obviously a good thing.

Still, there's no getting away from the fact that, in failing to win full reciprocity from the US, Britain has again found the special relationship to be wanting. Where's the payback for Iraq? Where is the influence which the Blair Government's unquestioning support for US policy in the Middle East is meant to have bought? It all goes to show that if you behave like a poodle, you are also going to be treated like one.

Brown's Budget trickery

Gordon Brown has never struck me as particularly Stalinist. A true Stalinist would have stabbed Tony Blair in the back a long time ago. Yet he is sometimes too clever and duplicitous by half.

Wednesday's Budget speech was a shining example of all that is wrong with British politics today. Admittedly, the Chancellor was upfront in conceding right at the start that what was proposed would be fiscally neutral. But he then went on to announce a series of derring-do tax cuts, the last one of which - a 2p in the pound cut in the basic rate of income tax - had even the Leader of the Opposition momentarily fooled.

If that had been the Chancellor's only purpose, then it was an extraordinarily elaborate and costly piece of political point-scoring. As theatre, I guess it had some merit, but it was also cynical and patronising. By the time David Cameron finished responding, even he had managed to figure out that the whole thing was just a charade, a mere juggling of the tax system of very little value to anyone.

To the extent that there was some higher social or economic purpose in it all, the Chancellor has yet adequately to explain it. Just how stupid does Mr Brown think we all are? Nobody likes a clever clogs, or to feel they have been misled. By inviting the description of "con trick", the Budget only undermines the Chancellor's credibility.

On close examination, even the justification of tax simplification doesn't really stack up. Removal of the starting, 10 per cent, rate of income tax and its replacement for those on low incomes with more generous tax credits only introduces a further element of complexity into an already Byzantine system with myriad different marginal rates. Why can't politicians say what they mean and do what they think is right? The Chancellor's achievements stand on their merits; they don't need to be constantly massaged and spun. Extensively rearranging the furniture of the tax system so as to give the illusion of tax-cutting reform doesn't impress anyone; to the contrary, it only irritates and alienates them.

A banking fudge, or a vital first step?

I'll wait to see the detail of the deal before passing final judgement on Barclays' attempt to merge with ABN Amro. Yet those in the City who accuse John Varley, the Barclays chief executive, of a messy euro fudge in agreeing a Dutch-appointed chairman, an Amsterdam headquarters and a Dutch lead regulator for the combined bank, miss the point.

This is the price that has to be paid for bringing ABN Amro to water. Others may not be prepared to pay it, and, as a consequence, are unlikely to get past first base. It's old-fashioned, I know, but Dutch boards continue to believe their duty is to serve the interests of all stakeholders, not just shareholders. Mr Varley has laid out a structure the Dutch establishment can feel happy with. This is a vital first step to securing the merger, without which little progress could be made.

Hedge fund managers such as Christopher Hohn of TCI are already beating the table and insisting a proper auction is held. A hostile bid from an outsider not approved by the Dutch central bank? I don't think so.